Honda cuts sales forecast as recalls delay new model roll-outs – Reuters

Posted: Tuesday, October 28, 2014

TOKYO (Reuters) – Honda Motor Co Ltd (7267.T) has trimmed its full-year sales forecast citing “tough” competition in Japan and China as well as the impact of recalls on new-model development, but said a weak yen would help it maintain its operating profit goal.

The Japanese automaker also said on Tuesday that operating profit fell 4.1 percent to 164.4 billion yen ($1.52 billion) in the second quarter, missing the 184.1 billion yen average estimate of 14 analysts polled by Thomson Reuters I/B/E/S.

The results came on the day Honda was named as a defendant in a proposed class-action lawsuit over recalls of vehicles with air bags made by Takata Corp (7312.T) that have been linked to four deaths, all in Honda cars. Honda said it had not received the lawsuit and therefore could not comment.

Honda has also been struck by five separate recalls for the same car – the hybrid version of its Fit subcompact – in just a year since its launch. Chief Executive Takanobu Ito and 12 other executives have taken responsibility in the form of pay cuts.

“As a result of this (latest Fit) recall, we have had to do a full inspection of all the new models” in the pipeline, Honda Executive Vice President Tetsuo Iwamura said on Tuesday. “This has caused a delay – and it differs according to model – but some by as much as six months.”

The direct consequence is Honda selling 80,000 fewer vehicles in Japan this business year ending March, Iwamura said.

FORECAST CUT

Overall, Honda cut its sales forecasts for Japan and China by 100,000 vehicles each, and left its North America estimate unchanged. It lowered its global forecast by 4 percent to 4.620 million vehicles.

Honda now expects revenue of 12.75 trillion yen rather than 12.80 trillion. It still expects 770 billion yen in operating profit, but now sees net profit of 565 billion yen, 5.8 percent less than forecast in July.

Operating profit is likely to be buoyed by a weak yen, which makes Japanese exports more affordable. But slumping sales in Japan since a consumer tax hike in April as well as in China contributed to the decision to cut forecasts, executives said after the earnings results.

“The overall market in China is growing, but that growth has slowed a bit. We, as well as some other car makers, have not been able to keep pace with the overall growth,” Iwamura said.

On a quarterly basis, operating profit fell in July-September after weaker sales in Japan and North America compared with the year prior, Honda said. Profit was also constrained by higher purchase incentives, particularly in the United States.

Shares of Honda closed 0.7 percent lower before the earnings release, compared with a 0.4 percent decline in Tokyo’s benchmark Nikkei index .N225.

TAKATA RECALLS

Clouding the outlook is the risk of more Takata-related recalls in the United States – Honda’s biggest market – where the National Highway Traffic Safety Administration is investigating reported failures of Takata air bag inflators in places with hot, humid weather.

The investigation is centered on whether hot and humid conditions cause the inflators to explode with dangerous force in the event of a collision.

Around half of Honda vehicles produced in 2014 used Takata air bags. Of that total, half use Takata’s inflators, while the rest use inflators supplied by Daicel Corp (4202.T), Iwamura said.

Honda expects to collect all recall-related costs from Takata, another executive told reporters.

(Editing by Christopher Cushing)

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